What is P/S Ratio?
P/S Ratio values company based on revenue instead of earnings. Useful for unprofitable companies or comparing across industries.
Think of it like this
Two food trucks each sell $100K yearly. Truck A costs $50K (P/S = 0.5), Truck B costs $200K (P/S = 2). Truck A is cheaper relative to sales!
Formula
P/S = Market Cap / Annual Revenue- Market Cap: Total company value
- Annual Revenue: Total sales over one year
Why it matters
- Values unprofitable companies
- Can't be manipulated like earnings
- Compare companies across industries
- Shows what investors pay per dollar of sales
What's a good value?
< 1
Undervalued
Potentially cheap
1-2
Fair Value
Reasonable for mature companies
2-5
Growth Premium
Typical for growth stocks
> 5
Expensive
High expectations or overvalued
Real-world example
Walmart P/S: 0.7 - low margin business. Zoom P/S: 8 - high growth SaaS. Car manufacturer: 0.3 - capital intensive. Profitless startup P/S: 20 - pure speculation.
Things to watch out for
- Ignores profitability
- High revenue doesn't mean profits
- Varies dramatically by industry
- Debt not considered
Screen US stocks by P/S Ratio in the app, and see which companies pass right now.